Common lease terms

Below are some common lease terms you may encounter during negotiations

Heads of Terms/Offer Letter - May be "binding" or "non-binding" in nature. Initially reflects the offer to lease made by the tenant and is reviewed/revised until terms have been agreed. May be signed by both parties and made "binding" to indicate the terms of the deal have been agreed. Upon execution of a binding offer letter, the tenant will generally make a payment of deposit. Should the tenant not proceed with the formal lease then this deposit may be forfeited as damages.

Tenancy Agreement - The legally binding document between landlord and tenant defining the conditions of the lease, restrictions or allowances and details such as rent amount

Renewal option - The right of the tenant to renew the lease upon the expiry of the initial term. It is common for the renewal procedure to be timelined and the method for determining the renewal rent to be clearly defined in the Lease. Should the parties disagree on renewal rents an arbitration mechanism may be defined to guide the procedure for rent determination.

Sublet right - Generally rare in standard leases in Hong Kong, this will give the tenant permission to sublet space to a third-party during the lease term. May be restricted by clauses giving the landlord the right to approve/reject the sub-tenant and to set the rent level or share in any profit made by the tenant through a sub-let arrangement.

Surrender right - A surrender right makes sense for larger occupiers who require the flexibility to return unused or unneeded space to the landlord during the lease term. If given, this right usually has specific dates and or amounts of space that may be surrendered.